How to Cancel a Bond Without Penalties?

How to Cancel a Bond Without Penalties?

Author: Moagi Raito
Canceling a bond is a necessary step in most property transfers, even though it might be intimidating the first time you do it.

Canceling a bond is a necessary step in most property transfers, even though it might be intimidating the first time you do it. Most homeowners are unaware that there are additional fees and requirements to consider when it comes time to cancel their bond, whether it is because they have settled their bond or are intending to sell their property. Here are some things you should know about the bond cancellation procedure and how to reduce costs: 

If you intend to sell your property, you must notify your bank in writing of your desire to cancel your existing bond. You may be able to avoid certain early termination costs if you provide this notice in time. The National Credit Act specifies an early-termination fee, which the bank imposes when a client terminates a home loan account prior to the conclusion of the pre-agreed loan period. Most bank’s require a 90-day notice period, which will avoid the raising of any early termination fees. If you fail to comply with this notification time, you may be subject to a penalty fee (various banks may differ slightly in their rules). 

Homeowners should also keep in mind that canceling the bond and notifying the bank of their intent to do so are two separate processes. The 90-day written notice simply signifies an intention to settle. It does not necessarily follow that the bond will be canceled 90 days after that notification.  

Requesting your cancellation figures (the outstanding loan balance), is the second stage in the bond cancellation procedure which a conveyancer will undertake on your behalf.  

The following information is required before the Bank can issue cancellation figures: 

  • Name of Bondholder/s 
  • Bond account number 
  • Erf number 
  • Property address 

If you’re selling your property, you won’t proceed to this step until after you’ve found a buyer and signed a deed of sale. Once a deed of sale and the required transfer documents are signed, a conveyancer will request cancellation figures from your bank.  

When your bond is successfully cancelled, the conveyancing attorney will settle the amount specified in the cancellation figures on your behalf. If you are not selling your property and only cancelling your bond you would need to pay the bond cancellation attorney fees (these fees are separate from the bond itself), if you are selling this is done by the conveyancing attorneys on your behalf. The Bank will refund any credit due to you and your bond account will then be closed. 

Keep in mind that the Bank will suspend your access facility once you give notice (if applicable). Therefore, it is advisable to withdraw any access funds you might require before the bond is placed under cancellation. 

It is worth noting that you can be responsible for penalty interest of about 1% of the loan balance if you cancel your bond within the first year or two of signing the contract. However, if the bond must be cancelled due to sequestration, a deceased estate, or if you are taking out a new home loan with the same institution to buy another property, paneities are typically waived. 

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